Six reasons why UK pharma has more to gain, than fear, from Brexit

There are good reasons to think exiting the EU represents a major opportunity for this dynamic and world-leading industry, argues Tom Cowap of Catalyst Corporate Finance.

Those who fear Brexit spells disaster for the UK’s pharmaceuticals sector can rest easy. Not only is there every reason to be confident in the sector’s ability to flourish after the UK has left the EU, but Brexit will deliver a positive boost.

No wonder this is an industry that continues to attract substantial investment. In 2017, three of the world’s largest pharmaceutical companies committed more than £1 billion to UK research hubs, creating nearly 1,000 high-skilled jobs – Brexit didn’t put them off.

Nor are Denmark’s Novo Nordisk, Germany’s Qiagen and MSD, the company known as Merck in North America, statistical outliers; plenty of other firms have put their money where their mouth is in recent months.

GSK, for example, has said it will invest £40 million in genomic research. Other large pharma companies announcing UK investments include AstraZeneca, Johnson & Johnson and the Medicines Co. The US-based life sciences fund Apple Tree Partners wants to invest up to $1 billion to create a large biotech company in the UK.

What do these companies know that the Brexit doom merchants do not? Above all, they recognise the strength of UK pharma, alongside the infrastructure and support that surrounds it. They also look forward to the new opportunities that Brexit offers the sector. Indeed, there are no fewer than six positive drivers that the UK pharmaceutical industry is now relishing before and after Brexit.

1. The UK is a global centre of academic pharmaceuticals research

Pharmaceuticals companies depend on high-quality research facilities to develop the drugs and treatments on which future sales will depend. The UK is an international hub for such facilities, boasting three of Europe’s 17 most important clusters of life sciences research facilities.

There is no reason why this should change following Brexit: why would pharmaceutical companies turn their back on these clusters given the impressive long-term results their collaborations have delivered?

Indeed, we are still seeing new collaborations. Qiagen is to establish a genomics research campus in Manchester, in partnership with the University of Manchester and the NHS. Novo Nordisk is investing £115 million in a new research centre at the University of Oxford, as part of a diabetes research collaboration with the university.

2. R&D spending on pharma in the UK remains strong

R&D spending is the lifeblood of the pharma sector and is as healthy as ever in the UK. Pharma accounts for almost half (47%) of all R&D spending in the UK, with charitable endeavours supplementing the R&D firepower of commercial businesses. The Wellcome Trust awarded £600 million of new research grants in the UK in 2016 alone.

R&D is expected to increase, rather than fall, following Brexit. The UK Government has committed to increase investment in R&D to 2.4% of GDP by 2027 and to 3% in the longer term. An increase in the rate of R&D expenditure credit from 11% to 12%, with effect from 1 January 2018, will help.

3. UK pharma benefits from huge Government support

With corporation tax due to fall to 17% by 2020, the UK will have one of the lowest corporate tax rates of any Western economy, but the pharma sector qualifies for even greater support through tax-efficient schemes such as the Patent Box and R&D credits; many UK pharmaceuticals companies will therefore pay an effective rate of between 11% and 13%.

In addition, the Government’s recently-unveiled Industrial Strategy positions the pharma and the life science sector as one of five key industries it thinks will underpin the UK’s commitment to advanced manufacturing and technology. Having already unveiled the Life Sciences Sector Deal, the first public-private sector deal announced in the wake of Brexit, including talks about investment with 25 global organisations, the Industrial Strategy promises further support.

4. Brexit will cement the UK’s global leadership on pharma regulation

As for Brexit factors that offer a shot in the arm to UK pharma, let’s remember that the UK’s Medicines and Healthcare Products Regulatory Agency (MHRA) is among the world’s most highly-respected and authoritative regulators. Currently, however, it must operate as part of the EU, where the European Medicines Agency (EMA) is the primary regulator.

Outside that system, the MHRA’s leadership credentials will only be enhanced, given its impressive track record. The MHRA is the leading identifier of ‘signals’, indications of a possible causal relationship between a drug and an adverse event, in every year since 2012, making it the most important regulator in Europe and meaning the EU will likely continue to depend on it post-Brexit.

As the OHE Consulting report, [Public health and Economic Implications of the United Kingdom Exiting the EU and the Single Market], has concluded, only continued full MHRA involvement in the EY27/EEA public health activities under free trade agreements will maintain current safety monitoring capacity.

The MHRA has the potential to flourish outside the EMA system, focusing not only on continuing regulatory harmonisation with the EU, which is already established, but with other global bodies too.

5. Post-Brexit, the UK will be better placed to target the world’s most lucrative pharma markets

Supremacy for the MHRA will be a major boost for the UK as it seeks to develop individual trade agreements and authorisation arrangements with the US, the biggest global market for pharmaceutical companies and the highest spender, and the Middle East and Asia, where sales are growing most rapidly. Regulatory harmonisation is key to trade agreements – this should be simpler and quicker to agree on a one-to-one basis.

Some of the mid-market CEOs featured in Catalyst’s Pharma Fast 50 view this as the key to success. Chris Watt, CEO of last year’s most highly-ranked company Qualasept Pharmaxo, argues: “The key to success post-Brexit will be the speed at which the MHRA can achieve the fullest regulatory harmonisation, supported by the government agreeing trade agreements with other territories. This will provide an exciting opportunity for UK pharma which has a comparative advantage globally.”

The omens are encouraging. The EMA has been negotiating a Mutual Recognition Agreement (MRA) with the US since 2014, but the FDA has only agreed on the capability of eight EU member states – the UK was one of the first.

The UK has devoted considerable time and resources to the EU regulatory authority but will now be able to focus on harmonisation with a wider range of countries, enabling easier movement of goods and trade. Switzerland is a great example of what is possible – its regulator, Swissmedic, was formed in 2002, and signed an MRA with the EU the same year.

6. The EU will be anxious to agree a mutual authorisation deal for UK pharma

Given the strong track record of UK companies in developing life-saving and life-improving drugs, as well as the attractiveness of the UK marketplace and the imperative to protect patient safety, the EU will prioritise a mutual authorisation deal with the UK post-Brexit.

This would mean UK companies do not lose out on sales to the EU. Evidence to the Commons Business Committee shows that 45 million packs of medicines go from Britain to the EU every month and 37 million come the other way, treating more than 500 million patients. This flow is critical not only for business but for human well-being; negotiators on both sides of the Brexit talks will take this into account.

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